In financial accounting, cash refers to the money that a business holds in liquid form, available for spending or investing at any time. Both large and small business rely on cash every day, but not all cash is readily available for use. Restricted cash is money that a business has squirreled away, requiring the business that holds it to account for it differently.

Definition

Restricted cash is cash that a business sets aside, often in a separate account, for a specific purpose. Some businesses set aide restricted cash in multiple accounts and for multiple reasons. This creates the need to differentiate between the various restricted cash accounts. When a company's balance sheet lists "other restricted cash" as an asset, it refers to restricted cash that is not included in cash balances listed earlier. Some restricted cash is given the label of "other assets."

Reasons

A business may have restricted cash for a number of reasons. In some cases, lenders require businesses to set aside cash to secure a loan. For example, a bank may require a small-business owner to open a restricted cash account before it will issue a small-business loan. That cash, which is unavailable for spending for a set period of time, gives the bank security in case the borrower's business fails. Businesses can also set aside cash voluntarily, in anticipation of an upcoming expense or investment opportunity. This might be called "other restricted cash," as opposed to the restricted cash that secures loans.

Accounting

Whatever its purpose, other restricted cash is part of the money a business controls and therefore must be accounted for in its financial statements. The business's balance sheet must list all assets and liabilities, including cash assets. Other restricted cash is generally listed separately from cash. It may be classified as a current asset or a non-current asset, depending on how long it is expected to remain restricted. Ultimately, restricted cash must appear as part of a business's net assets, since failing to account for it would give an unclear picture of the business's financial health.

Spending Other Restricted Cash

Even though it has its own name and accounting procedure, other restricted cash has the same monetary value per dollar as any of a business's cash assets. If other restricted cash is not spent as intended, it may become regular cash that the business can spend on anything or hold in a general cash account. For example, a small business may create an account called "other restricted cash" to buy a large order of raw materials if its new product sells well. If the product launch results in slow sales, the restricted cash would be released and the owner could spend it on anything, from a new marketing campaign to paying down old debt to giving workers raises.